If I had to build a portfolio of 10 large and mid-sized stocks today, it would probably look something like this.
- Flight Centre Travel Group Ltd (ASX: FLT)
The iconic Australian travel company is pursuing an aggressive international growth strategy and has so far managed to shake off the threat of online competition. Over the past four years, return on equity (ROE) has averaged over 20% and earnings per share (EPS) have grown by more than 10% each year.
- REA Group Limited (ASX: REA)
REA Group dominates online property classified advertising in Australia and is looking to replicate its success overseas. Thanks to a strong network effect, over the past four years, the company has averaged 40% ROE and grown EPS by 30% each year.
- Servcorp Limited (ASX: SRV)
Servcorp is run by its founder, has lots of cash and is building a formidable portfolio of serviced and virtual offices in the most desirable locations around the world. Since 2009, the company has added around 80 floors and effectively doubled in size, but many of these floors are yet to turn profitable.
- Navitas Limited (ASX: NVT)
Another company still run by its founder, Navitas runs 32 pathway colleges that help foreign students to integrate at university. The company consistently delivers ROE of more than 30% and international expansion should drive further growth.
- CSL Limited (ASX: CSL)
Blood plasma company CSL is a true global leader, with huge operating scale and deep intellectual property. Amazingly, the company’s ROE has nearly doubled since 2010 from an impressive 22% to an exceptional 42%.
- Altium Limited (ASX: ALU)
Altium develops software used to design circuit boards and is likely to thrive as increasing numbers of products contain electronics, thanks to the Internet of Things. As a specialist software company, Altium enjoys sticky recurring revenues, strong cash flows and high barriers to entry.
- Sydney Airport Holdings Ltd (ASX: SYD)
Sydney Airport is the only airport in one of the most desirable cities in the world and so has massive pricing power. It is likely that increasing numbers of passengers, each spending more money, will translate into growing dividends for Sydney Airport’s shareholders for decades to come.
- Austbrokers Holdings Limited (ASX: AUB)
Austbrokers operates the largest network of insurance brokers in Australia, earning a commission on any insurance sold but not responsible for paying out claims. Thanks to its co-ownership business model, it has been able to grow EPS by well over 10% per year over the last four years.
- Breville Group Ltd (ASX: BRG)
Breville is one of Australia’s best known global brands and sells some of the most cutting edge domestic kitchen appliances available today. Both annual EPS growth and average ROE have exceeded 20% over the past four years.
- Nick Scali Limited (ASX: NCK)
Furniture retailer Nick Scali has been run by the Scali family for more than 50 years. Their disciplined and far sighted business execution has ensured that EPS has grown steadily over recent years.
Rather than buying all these stocks straight away, investors are better off creating a watch list and snapping them up at times when the market is offering them for cheap prices.
The reason I don’t hold many of the stocks listed above is that they are mostly too large for my taste. If you’re like me and prefer small caps then follow the links below to discover two with exceptional prospects.
5 stocks under $5
We hear it over and over from investors, "I wish I had bought Altium or Afterpay when they were first recommended by The Motley Fool. I'd be sitting on a gold mine!" And it's true.
And while Altium and Afterpay have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $5 a share!
*Extreme Opportunities returns as of June 5th 2020
The Motley Fool Australia owns shares of Altium. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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